Financialstocks have been out of favor for much of the period
since the financial crisis. In the United States, the S&P 500
FinancialsIndex rallied just 9% between the end of 2008 and the end
of 2011 even though the S&P 500 soared 50% during the same time
period. (The same has been true in Europe as well.)
Investors have been understandably wary of wading back into the
group. The financial crisis left some of the world's largest and
oldest financial institutions on the brink of failure. Clearly,
many of these institutions failed to control their risk and ended
up far too exposed to the U.S. residential propertymarket bust and
to the more recent Europeansovereign debt crisis.
But the tide is starting to turn.
In 2012, the S&P 500 Financials Index was the top-performing
sector in the entire market. The Bloomberg European Financials
Index soared nearly 26%, compared with a 14.5% gain for the
Bloomberg European 500.
The U.S. residential property market is not robust by any
stretch of the imagination. But after five years of plummeting home
values and soaring foreclosures, prices are showing signs of
bottoming out in many markets. Foreclosed homes typically sell at
30% or larger discounts to homes in similar neighborhoods that
aren't distressed. But the shadowinventory of homes -- homes still
moving through theforeclosure process -- is beginning to dwindle,
putting less pressure on home values. There are even some signs
ofspeculation developing in some once-hot markets, such as Miami
and Phoenix, as short-term investors buy and sell homes on the
cheap to generate a quickprofit .
[My colleague Nathan Slaughter agrees. In fact, he's gone as far
as to say that "real estate .]
Rising U.S. property values benefit both international and U.S.
banks. The international financial system is so interconnected,
that larger financial institutions typically have exposure to loans
on residential and commercial properties in many different
Meanwhile, the European financial crisis is far from solved.
But, the EuropeanCentral Bank 's Outright Monetary Transactions
(OMT) -- a program for buyingbonds of fiscally troubled countries
to force down yields -- has taken the pressure off thebond markets
in countries such as Italy and Spain. European and U.S. banks with
large exposure to debt issued by these countries can breathe a sigh
of relief as a result.
And while Greece is likely to remain inrecession at least
through the first half of 2015, the country has successfully
renegotiated its debt burden with EU partners once again. The
prospect of an immediate and disorderly exit from the euro for
Greece or Spain seems a far more remote possibility today than at
the time of the Greek elections back in May.
This leads me to be very intrigued with international bank
stocks - particularly solid ones that pay high dividends.
The experience of the financial crisis prompted banks to
increase their capital positions so that they're able to sustain
periods of rising loan losses andasset impairments without risking
collapse. Governments in many countries have encouraged this by
using "stress tests" to single out banks that are vulnerable to
financial stress and need to raise additional capital.
The improvement in financial health of the global financial
sector should be welcome news for income-oriented investors.
Historically, financial stocks in many developed countries have
been among the largestdividend payers in their home markets. While
many banks cut or eliminated their dividends during the financial
crisis, some of the best-positioned continue tooffer yields well in
excess of 4%, while others look to be in a position to begin
raising their payouts again in coming years.
In the Decemberissue ofshares of large international companies
just like any other U.S.-based company.)
Here's what we found...
Action to Take -->
Any of these stocks are worthy of further consideration if you're
looking to diversify your portfolio with international dividend
payers. In fact, I ownpreferred shares of
in one of my
portfolios. Santander is a strong bank, with the preferred shares
of 5.2%. I still think they're worth a look.
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